Goods Returned After Repair or Alteration in the …

1 ISSN 2369-2391 Memorandum D8-2-26 Ottawa, September 8, 2015 Goods Returned After Repair or Alteration in the United States, Mexico, Chile, Israel or Another CIFTA Beneficiary, Colombia, Costa Rica, Peru, Jordan or Panama In Brief 1. This document has been updated to revise the list of countries where repairs or alterations may be done to Canadian Goods and that the Goods would be entitled to preferential tariff treatment when they are Returned to Canada. 2. This document also contains editing revisions which do not affect or change existing policies or procedures and includes changes to the Canada Border Services Agency organizational structure.

2 This memorandum outlines the conditions under which Goods may be Returned to Canada duty free After being exported to a free trade partner for Repair or Alteration under tariff item No. in the List of Tariff Provisions set out in the schedule to the Customs Tariff. Guidelines and General Information 1. Tariff item No. of the schedule to the Customs Tariff provides customs duty-free importation of Goods which are Returned to Canada, regardless of country of origin, After having been exported for Repair or Alteration in the United States, Mexico, Chile, Israel or a Canada-Israel Free Trade Agreement (CIFTA) beneficiary, Colombia, Costa Rica, Peru, Jordan or Panama.

3 2. The provision allows customs duty-free entry on the full value (export value and the foreign value added) of the Returned Goods , which were temporarily exported to a free trade partner (United States, Mexico, Chile, Israel or a CIFTA beneficiary, Colombia, Costa Rica, Peru, Jordan or Panama) for Repair or Alteration . At the time of import no customs duty is paid on the value of the Repair or Alteration . However, duties under the Excise Tax Act including the Goods and services tax/harmonized sales tax (GST/HST) and excise tax, if applicable, are payable on the foreign value added. Where excisable Goods are repaired abroad, and the value is enhanced, excise tax is payable on the duty-paid value of the enhancement.

4 For duty purposes, this provision applies to qualifying Goods regardless of whether the Repair or Alteration is under warranty or not and regardless of whether the Repair or Alteration could have been performed in Canada. 3. Free trade partner means: (a) a NAFTA country (United States or Mexico); (b) Chile; (c) Israel or another CIFTA beneficiary; (d) Colombia; (e) Costa Rica; (f) Peru; 2 (g) Jordan; or (h) Panama. Goods and Services Tax (GST)/Harmonized Sales Tax (HST) 4. This tariff item does not provide remission from the GST, nor the HST where applicable. However, paragraph 3(j) of the Non-taxable Imported Goods (GST/HST) Regulations prescribes certain Goods as non-taxable, namely those imported After being exported for Repair under warranty.

5 For the Goods to qualify for full GST/HST relief, the warranty must cover the full value of all parts and labour, excluding partial or conditional warranties. 5. For non-warranty repairs and alterations, if the conditions of section 13 of the Value of Imported Goods (GST/HST) Regulations are met, the GST/HST is payable only on the value of the Repair or Alteration performed outside Canada, including the value of added Goods . Generally, this treatment is conditional on the last importation of the good not having been based on a reduced value, not having been made on a non-taxable basis, and not having given rise to an imported Goods rebate for the tax on the importation.

6 The good must also not have been supplied prior to its re-importation without tax having applied to that supply because it was either made outside Canada or was zero-rated as an export, nor must the recipient of that supply have been entitled to a non-resident rebate in respect of the supply. The application of tax on the reduced value does not only apply where the Goods are exported for Repair work, but also where they are exported for such processing as adjusting, Alteration , assembly, maintenance, manufacture, production, modification, overhaul, packaging, repackaging and testing provided the work meets the definition of a Repair or Alteration in paragraphs 11 through 14 below.

7 6. The HST for non-commercial importers applies to Goods imported by residents of a participating province, regardless of where the resident or the Goods enter Canada. This tax is paid at the time of importation of non-commercial Goods by the resident in a participating province. Other Provisions for Temporarily Exported Goods 7. Memorandum D8-2-1, Canadian Goods Abroad Program provides partial or full duties relief on Canadian Goods Returned After being exported for eligible Repair , equipment added, work done, or emergency repairs incurred outside Canada. For repairs done in countries that are not parties to free trade agreements, importers may use the Repair provisions in paragraph 101(1)(a) of the Customs Tariff.

8 If Canadian Goods are exported from Canada to any country for work done involving manufacturing or assembling processes, importers must make application for the provisions in paragraph 101(1)(c) of the Customs Tariff that apply regardless of a free trade agreement. These provisions are detailed in Memorandum D8-2-1, Canadian Goods Abroad. Memorandum D8-2-4, Canadian Goods Abroad Program Emergency Repairs provides information regarding relief for emergency repairs to conveyances outside Canada. 8. Tariff item No. applies to vessels temporarily exported for Repair or Alteration in a country designated as a free trade partner. See Memorandum D8-2-25, Canadian Vessels Repaired or Altered in the United States, Mexico, Chile, Israel or Another CIFTA Beneficiary, Colombia, Costa Rica, Peru, Jordan, Panama, Iceland, Liechtenstein, Switzerland or Norway.

9 9. Memorandum D8-3-8, Canadian Civil Aircraft, Canadian Aircraft Engines and Flight Simulators Repaired Abroad explains the conditions under which a remission of the GST/HST may be granted on all Canadian-manufactured or previously accounted for civil ( non-military) aircraft, aircraft engines, and flight simulators as well as parts exported from Canada, when Returned After being repaired abroad. 10. Duty-free tariff item Nos. and refer to Canadian Goods , including containers, and Goods once accounted for, exported from Canada, if the Goods are Returned without being advanced in value or improved in condition by any process of manufacture or other means, or combined with any other article abroad.

10 What is a Repair or Alteration ? 11. The term Repair means the adjustment of a good to restore it to its original operating condition and includes minor changes necessary to complete the restoration including replacing parts. Memorandum D8-2-26 September 8, 2015 3 12. NAFTA Article 318, Repair or Alteration , does not include an operation or process that either destroys the essential characteristics of a good or creates a new or commercially different good. 13. Under Note N-2 (10) of NAFTA, an operation or process that is part of the production or assembly of an unfinished good into a finished good is not a Repair or Alteration of the unfinished good.